AEG Analysis: Is Aegon A Bargain?

Aegon AEG AnalysisIs Aegon (NYSE:AEG) a bargain? It certainly looks cheap. Read this short AEG Analysis to find out if this is the buying opportunity you’ve been waiting for…

This AEG analysis gives you a quick fundamental primer (to help you determine the safety of AEG). Then we’ll dive into the technicals to identify some target entry points. So here’s the AEG analysis you’ve been waiting for…

Q1 2013 AEG Analysis – Video Update

Fundamental Analysis of AEG: Global Insurance Market…

There are a couple of things you should recall about the business AEG operates in. First of all, the insurance market is very competitive. This mutes expectations of growth.  And…

While management has done a good job cutting expenses, streamlining the business and maintaining disciplined pricing, they’re being conservative about forward guidance. This is in large part because of global market trends.

Insurance companies are interesting businesses for investors because they generate a fair amount of cash by collecting monthly and annual premiums. Warren Buffett owns a lot of insurance (and reinsurance) assets.

Unfortunately…

Developed markets are pretty saturated in terms of life insurance (one of AEG’s main products). And the aging of the baby boomer segment means (eventually) fewer premiums and increased claims. Double ouch. By the way…

AEG also engages in pension management services, which may also be liable for a hit (unless baby boomers work until their death, a not impossible theory)

But you should still be careful…

And watch closely to understand how AEG and other insurance companies will fight these demographic headwinds in the coming quarters. How will they monetize emerging markets, and hedge their demographic risks?

Insurance companies that want to keep growing will need to answer these questions. AEG included.

By the way, we haven’t even touched on the fact that AEG is a European asset management company. Sure, by all appearances AEG is a well-capitalized Dutch bank. But who knows what can happen as Euro stress heats up. I’d be scared to own this stock if Spanish and Italian bond yields ever creep up again.

AEG Analysis: Fundamental Valuation Metrics

You might not believe it: But at one point in time, AEG traded above $60 per share. But for the last four to five years, AEG has bounced around in a channel, from $4 to $8. So it shouldn’t come as a surprise that in terms of my stock screening metrics, AEG stacks up pretty well.

Specifically

AEG Analysis Fundamentals

You’ll probably notice: AEG has a ton of cash per share. Management has done a great job here. But the sword cuts both ways. And while cash makes AEG a safer investment, the problem now is a chronically low return on equity. And given European banking capital requirements, it’s unlikely this cash will be deployed anytime soon. See the problem?

That said, the current ratio of AEG is a healthy 1.42 which, gives some color on the higher debt/equity ratio. I can stomach stable long term debt, I think. The 4.2% dividend makes it a little more palatable. And as long as central governments (banks?) keep easy policy, AEG looks relatively safe.

So where should you buy AEG?

AEG Analysis: Technical Price Action

AEG Analysis - Technical

AEG Chart – Does the wedge mark a continuation or reversal pattern? (Click to Enlarge)

For AEG, (and other stocks) you’re best served to do technical analysis on a couple of different time frames (year, month, day, intra-day). It helps get good perspective. For example…

As I mentioned above, AEG has been “dead money” over the last 5 years, bouncing from $4 to $8. This is good context you should keep in mind when you’re planning a buy target in your AEG analysis…

Over the last year AEG has floated up from $4 to $7, and now back to $6. Year to Date, AEG has lagged, while the SPDR S&P Insurance ETF KIE is up 17%…. So, where do you go from here?

Currently, AEG looks to be trading in a wedge formation, resting on prior support. While a continuation pattern appears likely, you should guard against a reversal pattern, or even more churning price action. So what’s my advice to you?

Just try to be patient, and avoid overpaying. This is the kind of stock I like to buy when headline news is getting the market down. Especially if the rumors about hedge funds buying AEG stock are true.

In terms of my own AEG buy targts…

I might look to buy some AEG around recent lows ($5.85) with a stop below the 200 day moving average (depending on your risk tolerance). If the breakdown were purely technical in nature I may even add to my position on a pullback. So long as the moving averages are converging, a move may be in the cards.

And one more thing…

Volume on AEG is usually pretty robust. Lately there’s about 1 million shares trading each day. I also like the 2+ Beta that comes from the overnight gaps (given the company’s headquarters in Europe). It makes the NYSE trading a little choppy. It can be fun, but volatile. So…

Is AEG A Buy? Final AEG Analysis:

There are some significant fundamental headwinds that put a damper on significant capital appreciation for AEG. That said, there is a modest dividend (4.2%) and quite a large margin of safety. These two factors make it attractive to me (in fact, a lot of my investments are based on these factors).

And you know, I’m not a boring old buy and hold type guy either. I hope you didn’t see me that way. Usually, I approach it like this: Buy a 1/4 to a 1/3 position at a time on pullbacks, and sell up to 75% of it whenever the stock goes up 7-15%

I’ve found this to be a good tactic for padding my returns. And I think I can apply it to Aegon. That’s my AEG Analysis. Make sense?

So what do you think?

What’s your AEG Analysis?

AEG Video Update:

AEG Technical Analysis Update – Buy the Dip?

My gut tells me no! Even though AEG looks like a bargain based on valuations, I have to heed my cautiousness given the broad market weakness. I also already have some exposure around those levels, so I am entertained enough just crossing my fingers to see if recent support holds true.

AEG Analysis - 30 Minute

April 17 , 2013: Will recent support hold on this zoomed-out 30 minute chart of AEG? (click to enlarge)

What do you think the technical analysis of AEG on this time-frame is saying?

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